Claim can be denied if key information is suppressed

Basmati’s husband, Sukhdev, who worked in Bhilai Steel Plant, had taken 13 insurance policies from the various branch offices of the Life Insurance Corporation (LIC) of India. These policies were taken over a period of time ranging from January 1997 to February 2001, for a total coverage of Rs 13.4 lakh. The premium for all the policies was being deducted from his monthly salary.

Sukhdev died on November 15, 2002 in Jawaharlal Nehru Hospital. His widow Basmati lodged claims under the policies. LIC paid only Rs 3 lakh. Since it did not settle all the claims, Basmati had a legal notice issued, but this too was ignored. She then filed a complaint before the District Forum for a direction to pay Rs 10.4 lakh towards the claims under the various policies. She also claimed 12 per cent interest.

LIC contested the complaint, alleging that Sukhdev had asked his employer to discontinue deduction of premium from his salary. And since he too did not pay the premium, the policies had lapsed. LIC also argued that the complaint was not maintainable as the employer had not been made a party to the proceedings. LIC also stated that the scheme permitted only Rs 3 lakh to be paid to any single individual, and so the balance claim of Rs 10.4 lakh for the remaining Bima Kiran Policies was not payable as insurance had been obtained without disclosing the earlier policies. LIC also alleged that three policies had been taken after Sukhdev came to know about his ailment.

The District Forum observed that LIC had failed to produce any evidence to show that Sukhdev had asked his employer to discontinue deduction of the premium. The Forum also questioned why LIC had not checked and collected the information regarding the existing policies at the time when Sukhdev had applied for insurance coverage, but had gathered this information only after his death when the claims were lodged. It held that the claimant cannot be made to suffer for LIC’s failure to verify the existing policies. As regards the policy being taken after knowing his medical condition, the Forum observed that Sukhdev had been admitted to hospital two days before his death, so he could not be aware of any pre-existing ailment.

The District Commission ordered LIC to pay and settle the claim under all the 13 policies. Additionally, it awarded 6 per cent interest and Rs 2,000 towards litigation costs.

LIC challenged this order in appeal. The Chattisgarh State Commission overturned this decision, holding that the claims were not payable as Sukhdev had deliberately concealed material information regarding pre-existing policies, and also because the policies had lapsed due to non-payment of premium. The State Commission upheld the repudiation, yet awarded Rs 25,000 as compensation for the deficiency in service of keeping the claim pending. It also awarded Rs 500 as costs.

Basmati questioned this order by filing a revision petition. The National Commission observed that Sukhdev had failed to truthfully answer the question in the proposal form regarding the existing policies. It held that this constituted suppression of material fact, which deprived the insurer from making an informed decision regarding whether to issue the policy. Relying on the decision of the Supreme Court in Reliance Life Insurance Co. Ltd. & Anr. v/s Rekhaben Nareshbhai Rathod, the National Commission concluded that the claim had been rightly repudiated.

Accordingly, the National Commission by its order of May 4, 2022, delivered by Jus­tice R K Agrawal for the bench along with S M Kantikar, dismissed Basmati’s revision and upheld the decision of the State Commission that the claims were not payable.

The writer is a consumer activist